Professional Documents
Culture Documents
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA § Criminal No. 94-0276-CAL
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§
14 VS. §
§ Amended l\tlotion Pursuant to 28 U.S.C.
15 § 2255 to Vacate, Set Aside or Correct
CONNIE C. ARMSTRONG, JR. Judgment and Sentence
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18 COll1es now, Defendant, Connie C. Annstrong, Jr., in the above l1unlbered and styled cause
19 of action and presents this Motion pursuant to 28 U.S.C. 2255 attacking thejudgement ofcol1viction
20 and sentence ilnposed by this court.
(a) .T ury ( x)
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(b) Judge only ( )
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7. Did you testify at the trial?
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Yes(x) No()
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7 10. Other than a direct appeal from the judgment of conviction and sentence have you
previously filed any petitions, applications or motions \vith respect to this judgment in
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any federal court?
9 Yes (x) No ( )
11 (a) (1) Name of court: United States Court of Appeals for the 9 1h
District
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(4) Did you receive an evidentiary hearing on your petition, application
or motion?
17 Yes() No(x)
18 (5) Result: Motion for Rehearing denied and mandate issued in 2003, but
nlandate was recalled and the order denying the motion for
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reheaJing was withdrawn due to lack ofnotice to defendant by
20 the 9th Circuit. The order denying defendant's motion for
rehearing was denied and nlandate re-issued on April 22,
21 2008. Therefore, the one year Statute of Lin1itations to file
this n10tion did not begin tolling until April 22, 2008. See
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exhibit #] attached to this motion.
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(6) Date of result: April 22, 2008
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(b) As to any second petition, application or nlotion giye the same
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infornlation:
Not Applicable
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(d) Did you appeal to an appeJiate federal court havingjurisdiction the result
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of action taken on any petition, application or motion?
8 (e) lfyOlJ did not appeal from the adverse action on any petition, application
or motion, state briefly why you did not:
9 Continuation of a direct appeal on the nlerits or a
Motion pursuant to 28 U.S.C. 2255 would be the proper
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remedy.
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12. State concisely every ground on which you claim that you are being held unla\vfu))y.
12 Summarize briefly the facts supporting each ground. If necessary, you may attach
pages stating additional grounds and facts supporting same.
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A. Ground One:
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Defendanfs prosecution and subsequent conviction were unconstitutional due to
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proseclItorial nlisconduct caused by political influence which caused the Petitioner to be deprived
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of his right to a fair trial, his ability to 1110unt a defense to the charges against hinl, and his light to
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effective assistance of counsel at trial.
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Supporting Facts:
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.Introduction:
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Connie Anllstrong, Jr. received the following infonnation six years after his conviction in
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this case. As a result, these issues either could not have been properly raised on direct appeal or
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properly presented on direct appeal. Mr. Anl1strong's only course of action at this stage in the
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proceedings is a Motion to Set Aside and Vacate Judgment pursuant to 28 U.S.C. 2255.
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convicting an innocent man.
21
COlmie Annstrong, Jr. \vas originally indicted of 21 counts of fraud on, June 27, 1994, In
22 relation to his actions as the CEO of a con1pany called Hanlilton Taft (hereinafter collectively
23 referred to as HT). Although~ the gIn Circuit Court of Appeals ultimately vacated Mr. Annstrong s 1
24 conviction on several counts, he was sentenced to 108 n10nths in prison and some 62 111111ion dollars
25 in resti tution. The restitution allegedly owed by Mr. Annstrong was later refomled to one 111illion
fill the hole, thereby creating an ever increasing deficit for HI. Jd. At trial, the govemnlent relied
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on several oEBT's clients, such as Federal Express, Scott Paper, and R.R. Donnely, as the alleged
22 victims to the fraud perpetrated by Mr. Arnlstrong. ld. The govenl111ellt claims these client
23 C0111panies lost nlillions of dollars at the hands ofMr. Annstrong's fraud. Id.
24 It is noteworthy that HT was embroiled in the civil bankruptcy proceeding \vhile Mr.
25 Amlstrong's crinlinal proceeding was pending. This involuntary bankruptcy action was initiated
2 Rather than waiting for all of the evidence to come out and all of the 1110ney to be accounted for
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pursuant to the bankruptcy proceeding, the govenmlent chose to prosecute Mr. Amlstrong with
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inCOlnplete, and inaccurate evidence because they Imew securing a conviction against Annstrong
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would be impossible once an accurate accounting of HT assets was completed.
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Subsequent to Mr. Annstrong's conviction, new evidence has been discovered. It is clear
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the government was aware of the existence of this evidence at the time of trial and deliberately
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withheld this infonnation from Amlstrong. This new--evidence proves Mr. Armstrong's prosecution
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was based on prosecutorial misconduct, corporate malfeasance, and undue political influence.
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Additionally, the alleged elTors at trial, i.e., late disclosure of Brady 11laterial, the court's
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unwillingJless to grant a continuance to review the material, and the court's unwillingness to properly
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instnlct the jury the laws oftrust and Mr. Armstrong's theory ofdefense become even nlore hamlfuI
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in light of the new evidence. In order to adequately explain Mr. Amlstrong's current position, it is
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important to understand the circumstances in which Mr. Annstrong acquired HT and exactly ho\v
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HT dealt with its clients on a contractual basis. Much of the ne\v doculnentation that is in Mr.
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Anl1strong's possession will be referenced throughout this lnemorandum. The docu1l1ents referenced
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,\vill be attached as exhibits to this men10randum.
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ARMSTRONG'S HISTORY:
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In 1986 Am1strong started Dresdner Enterprises, a Dallas-based corporation. (RT 492.)
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THE ACQUISITION OF HAMILTON TAFT BY ARMSTRONG:
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HTwas founded in 1979. HT services have always centered around providing its clients with
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payroll tax preparation and payment services under the same general structure as it did when Mr.
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Annstrong was the CEO of HT. In other words, HT has ALWAYS entered into contractual
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relationships with its clients wherein clients would deposit money for its taxes to HT and HT in tum
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was allowed to invest the monies for its own benefit until the clienfs taxes were ultimately paid.
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H is important to note that, this was not a novel idea created by Mr. Annstrong and this type of
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business had been conducted by HT since its inception in 1979.
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In August of 1984 HT was sold to the Cigna Corporation. Then, on February 28, 1988
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Maxphanna, a publicly traded corporation, purchased HT from Cigna. In late 1988, Mr. Am1strong,
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a shareholder of the Maxphanna corporation, found out that HT was 1n financial difficulty. (RT
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3487). Armstrong learned that Maxpbarma had bOlTowed money from HT and was having difficulty
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paying it back because Maxphanna had not collateralized any ofthe loans it obtained [raIn HT. (RT
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4323, 4349). Since HT's business was comprised only of its paYroll tax services to its clients, the
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only way Maxphanna could have bOlTo\ved these monies was ifHT lent Maxphanl1a nlonies frOlll
22 HT's account. When Maxpharma took out uncollaterlized loans fronl HT these loans caused a
capital deficit 0[20 million dollars. (RT 3297,3298.) However, at the time HT was processing and
24 paying over 3 billion dollars in payroll taxes for its clients and therefore had no problenls covering
2S its obligation to pay client taxes. When Armstrong purchased HT, Amlstrong's concenl was ifHT
2 loans to Maxpharma were not collateralized. Unknown to Armstrong at the time ofhis trial, in 1988
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the FBI, under the direction ofMike Yamaguchi, investigated HT and Maxpharma in regard to these
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loans and the use of HI funds transferred to HT under contractual agreenlent by the clients and
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detem1ined there had been no violation of federal laws. See exhibit #3. It was not until six years
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after Mr. Annstrong was convicted and in prison that he began receiving this infomlation.
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In January 1989, Annstrong retained Dallas law firm of Godwin, Carlton and Maxwell to
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prosecute a shareholder's derivative suit against Maxphamla. (RT 213-214.) The suit alleged the
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Maxphanna had borrowed at least 14 million dollars in unsecured loans fr0111 HI (RT 3597, 4349)
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and, as a result, was attenlpting to sell offthe financially unstable HT \vithout shareholder approval.
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In late March 1989, the majority shareholder of Maxpharrna, John Roberts, offered to give
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Am1strong complete ownership ofRT if Armstrong agreed to take over the Maxphanna loans fron1
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HT. Annstrong agreed and became the sole owner and CEO of HI. (RT 226-229, 4352.) See
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exhibit #10.
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HAMILTON TAFT'S INVESTMENT PROTOCOL AND CORRESPONDING CLIENT
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CONTRACTS:
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When Annstrong took control ofHT the deficit, known as the "hole," was estitnated at 20
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111111io11 dollars. (RT A526, A906, 3600, 3296,4009.) This deficit represents the amount of taxes
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which could not have been paid ifHT had immediately been shut down. When Anl1strong took over
22 HT. he realized the deficit had to be filled in order for HT to beC0111e secured. (RT 3931. 3957-
23 3958.) Annstrong believed he could tum HT into a profitable C0l11pany (RT 3127.4353) but knew
24 the only way to accomplish this was to collateralize the deficit with long tenll investn1ents that would
25 eventually cover the deficit through a return on said investnlents. (RT 3601,3968.)
becOllles clear the San Francisco DepartI11ent of Justice did not think Mr. Armstrong violated allY
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21 federalla\vs and only prosecuted him in the first place due to intense pressure from Howard Baker,
22 Nancy Pelosi, Barbara Boxer, the director of the FBI, L.A. Potts, and a few ofHT's clients such as
23 Federal Express. This political parties involved also facilitated enoneous national and intenlational
24 llledia coverage. This infomlation, in conjunction with trial COUl1 error warrants a finding that the
25 evidence in the case was legally insufficient to support a conviction in this case. A1111strong
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THE DEMISE OF HAMILTON TAFT AND CONNIE ARMSTRONG CAUSED BY
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FEDERAL EXPRESS AND IMPROPER POLITICAL INFLUENCE:
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In July 1990, Steve Solodoffwas hired as controller for Hamilton Taft. (RTI024, 4075.)
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Solodoffs employment at HT was temlinated as a result ofhis cocaine use. On Decelnber 24, 1990
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and after his tennination from HT, Solodoffapproached the Federal Bureau oflnvestigation and the
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San Francisco division ofthe Internal Revenue Service by filing a cOlnplaint alleging Mr. Annstrong
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and HT were improperly diverting client monies. Documents reveal that Mike Ymnaguchi had
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already investigated HT for this same claim in 1988. See exhibit #4. According to FBI
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111emorandums, Solodoffwas told there was not enough evidence to support his claim that HT was
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illegally diverting client monies. See exhibit #4. The FBI also told SoIodoffthe FBI had concerns
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that significant liability existed if the govemn1ent caused the downfall of a private corporation by
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ll1aking an overt investigation of the company without enough evidence. See exhibit #4. The FBI
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was worried that if an unwarranted investigation against HT was made public causing HT clients to
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cease doing business with the company, the government would ultimately be liable for the downfall
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of HT. This was made clear to Mr. Solodoff.
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As explained above, HT was started in 1979 and then purchased by Cigna in 1984. In
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January of 1988, Cigna sold HT to Maxphanna. See exhibit #5. The sell to Maxpham1u was
21 accompJished by instructing HT to transfer five n1illion dollars to Howard Weil, a brokerage house
22 in Ne\v Orleans, so that a securities transaction known as a ·'reverse repo" could be done. 2 See
23 exhibit #6. In this transaction with Howard Weil, HT transferred five ll1iIlion dollars to Howard
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2This type of transaction is done by converting cash into United States
25 treasuries and borrowing up to 95% against the value of the treasuries.
2 which \vas then transferred to Maxphanna pursuant to a loan agreement between HI and
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Maxphanna. See exhibit #6. Maxphanna then paid Cigna for the purchase ofBT. See exhibit #5
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and #6.
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After the acquisition ofHT, Maxphanna began making loans to its own corporate officers
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and outside persons who were acquainted with Maxphamla. See exhibit #5. These loans were 111ade
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using HT funds and amounted to approxin1ately 14 million dollars. See exhibit #7. These loans
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caused employees of HT to contact the FBI in 1988 and file a complaint that HT tax funds were
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being used to fund unsecured loans. See exhibit #4. The contention in the cOlnplaint was that this
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was improper because HT tax funds were qualified as trust monies. See exhibit #4.
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In response to these cOlnpJaints, the U.S. Department of Justice began an investigation. See
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exhibit #4 and #8. AUSA~ Mike Yamaguchi, was in charge of this investigation. See exhibit #4 and
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#8. Prior to working with US Attorney's Office, AUSA Yamaguchi worked in the Pete Marwick
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finn 's tax division. See exhibit #9. Naturally, the 1988 investigation of HT was well within
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Yanlaguchi's area of expertise. On September 23, 1988, a letter addressing this investigation stated
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that AUSA Yatnaguchi made a detennination that there was insufficient evidence to support the
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contention that any vioJation of federal law had occurred-with respect to Maxphanl1a and HT. See
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exhibit #8. Based on Yamaguchi's opinion in the matter, the Department of Justice closed the
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investigation (see botton1 of letter). See exhibit #8.
21
On February 8, 1991, Richard Held sent US Attonley McGiven a letter asking for a
22 prosecution opinion as to wl1ether a violation of federal law had taken place with respect to the new
23 clainls against HT because the US Att0111ey's Office had already decided that no violation existed
24 on the exact sanle issue back in 1988. See exhibit #4. See also exhibit #11. AUSA Ya111aguchi was
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On February 12,1991, Special Agent PKM and an agent frOlTI the IRS CTD receive calls froll1
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an attorney at the Department of Justice in Washington, D.C. inquiring as to any FBI and/or IRS
22 connection \vith Hamilton Taft. See exhibit#12. On February] 3,1991, Special AgentPKM meets
23 with Solodoff after the Wall Street Journal inquires and was ren1inded abollt the lisle of the
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3The contact is considered un-named because the government removed the
25 person's name from the memo before Mr. Armstrong received it.
2 company. Id. Special Agent PKM also explained to Solodoff that there was no crin1e on the part
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of HT since there were no victims. Id.
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On March 6, 1991, Special Agent PI<M received a call from Special Agent Swain with the
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TRS CID. Swain reported to PKM that he had been contacted by Ralph King, investigative reporter
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for the Wall Street Journal, to confirm the IRS was conducting an investigation into HT. rd. Also,
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on March 6, 1991, agent PKM received a written telephone message from King. At SaIne point on
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the 6 th , King connects with PI<M and asks questions about a possible FBI investigation ofHT. Id.
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PI<M responded as protocol dictated that HHe could neither confilTI1 nor deny any infonllation
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regarding HT", and Ralph IGng was ~'perturbed by the answer." See Jd.
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Special Agent PKM was then contacted by a representative of Sun Microsystenls. The Sun
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representative reports that he was contacted by Solodoff and an attonley advising that Sun
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Microsystems and numerous other HT clients were the victilTIS of fraud perpetrated by HT. Id. On
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March 8, 1991, 20-40 alleged victims ofHT, including Federal Express, n1eet with Solodoff at the
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offices of Sun Microsystems to discuss the matter. Id.; CRT 2449; 2450, 2840.) At this meeting,
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Solodoffgave lhe representatives ofthe alleged HT victim cmnpanies a printed handout that clainled
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Anl1strong was operating a Ponzi schen1e, "stealing" the clierHs' tax funds, and planned to run Hsouth
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of the boarder." (RT 4076-4081; 4113, 4120.) Two days later these clients not only ceased fUlure
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paynlents to HT but also began withdrawing already deposited funds from HT. (RT 3196.) These
21 clients did nol contact HT to inform HT they were stopping payn1ent or \vhy they \vere stopping
23 Five days after this 111eeting with Solodoff, on March 13, 1991, Federal Express files a civil
24 lawsuit against HT in Federal Court for the Northern District ofCalifOlll1a. See exhibit #14. Federal
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2 evidentiary hearing can be held. See exhibit #14. The judge schedules an evidentiary hearing for
3 August 1991. Rather than having the evidentiary hearing to determine ifthere was enough evidence
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supporting HT's alleged fraud on its clients to warrant freezing ofHT assets, Federal Express along
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with Stanford University Hospital and Stanford University, filed a petition for involuntary
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bankruptcy on March 14, 1991. See exhibit #15.
7
Meanwhile,just nine days after contacting the IRS and FBI seeking a story, Ralph King and
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the Wall Street Journal published and unfavorable and erroneous front page article detailing how
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Annstrong had defrauded and stolen money from HT clients. See exhibit #16. This article reports
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An11strong's alleged scheme to defraud HT clients for 100 million dollars as fact without any
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evidence other than hearsay and conjecture and before any evidence has been heard by the
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Banluuptcy court. The Wall Street Journal article is promptly picked up by other 111edia outlets
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across the country~ including the San Francisco press corp. On March 17, 1991, in response to this
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media frenzy, politlcal pressure fron1 Baker, Pelosi and Boxer, and a fe\v angry HT clients (who were
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falsely infoffiled), the FBI launches a fonnal investlgation of HT and Connie Annstrong. 4 See
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exhibit # 17. It is noteworthy, this investigation was launched before any banla-uptcy court
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proceeding had taken place andjust nine days after the March 8, 1991 FBI memo was issued stating
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there was insufficient evidence to support a crin1e, there were no victims, and the government could
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20 SIt should also be noted the IRS declined to join in any prosecution
of Mr. Armstrong, presumably because the IRS did not believe Mr. Armstrong
210r HT had committed any IRS violations. See exhibit #.
22 6On December 31, 1991, the bankruptcy trustee issues a report stating
that HT's assets were valued at roughly five million dollars, not nearly
23 enough to cover the alleged 90 million dollar "hole" created by Armstrong.
See 12/31/91 trustee report, exhibit #. The government relied heavily on
24 this report during the criminal proceedings against Armstrong. As it turns
out, this report was inaccurate as it was issued before the bankruptcy
25 proceedings were concluded.
19
7In 1990, HT processed nearly seven billion in payroll taxes. Taking
as true, the government's assertion that this Ponzi scheme of Armstrong's
20 created a 100 million dollar deficit in the company, HT was clearly not in
financial trouble or a candidate for involuntary bankruptcy as the deficit
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only amounted to less than 1% of HT's annual cash flow.
22
Since the time of Armstrong's conviction and the bankruptcy proceedings
23 has concluded and the rest of the facts have unfolded, Federal Express may
still be liable to Armstrong for the demise of HT. Indeed, the government
24 may be liable to Armstrong for a 1983 ci vi 1 rights violation for a
malicious, unfounded prosecution in a case that was civil in nature, not
25 criminal because there were never any "victims n to begin with.
2 not victims (See exhibit #12), Federal Express, et a1. conveniently provided the govenlment with
3 several victinls. HI had withholding tax payments for a small percentage of its clients, however,
4
until HT was placed into involuntary bankruptcy all payroll taxes, including penalties had been paid
5
by HT for prior quarters. See exhibit #2]. However, by placing HT i11to involuntary bankruptcy
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and freezing its assets on March 25,1991, before the paj'lnen1s and penalties were due on APli115,
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1991 for the quarter ending on March 31, 1991, Federal Express, et a1. prevented HT from paying
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its client's payroll taxes for the pI quarter of 1991. In other words, HT's own clients caused
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themselves to be the "victims" the government did not have prior to the bankruptcy. Federal
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Express, et a1. were responsible for their own losses, not HT. Although too late, Federal Express
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surely recognized that it should have consulted directly with Annstrong and HT to better understand
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what was going on before placing the company into involuntary bankruptcy. Ultilnately) the only
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way for Federal Express to ensure it would not incur any liability for the del11ise of HT was to
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pressure the government to pursue criminal charges against Armstrong.
15
On June 27, 1994, the governlnent secured an indictment against Connie Annstrong, Jr. for
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21 counts of fraud. Mr. Annstrong plead not guilty and his trial by jury began in December 1996
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and concluded on February 26, 1997. Mr. Annstrong was convicted on all 21 counts (although the
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conviction on several counts was later vacated by the 9 th Circuit Court of Appeals) and sentenced
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to 108 months in prison and 62 million dollars in restitution that he allegedly owed to the clients of
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HT. His restitution was later refonned to one n1i1110n dollars. However, the banknlptcy case had
23 The banlauptcy case concluded with a final trustee report by Hel11TIling Morse on
24 Septenlber 13, 1999. This report showed the liquidation ofHT assets at sonle 1 l3 Inillion dollars,
25 an anlount far in excess of the estinlated five n1i1110n dollars the govemnlent relied 011 eXlensively
2 O1iginally estimated? Because Annstrong was not stealing HT client funds. Rather, he was
3
investing the funds in collateralized long tenn investments in HT's name in an effort to fill the 18
4
million dollar deficit he inherited when he took over the company frOITI Maxphanna. The trustee
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didn't accurately depict the value of these assets. Also noteworthy from the final report is the fact
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that Mr. AImstrong's plan to cover HI's inherited deficit worked. After aU HT assets were
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liquidated, all HT creditors (clients) were paid the money owed to then1 from funds invested by HT,
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and the bankruptcy tnlstee was paid 39 nlillion dollars. See exhibit #22. As it turns OLlt, the -FBI
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was correct when it told Mr. Solodoff there was no crime without any victims. Based on the final
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bankruptcy accounting, clearly, Mr. Annstrongnever committed any fraudulent crinle because there
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were no victims.
12
These assets, however, were not taken into account by the govemnlent or HT's 11lisinfonned
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clients when they conspired to take down HT and send Mr. Anl1strong to prison. Also not taken into
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consideration by the govenlllent or HT's clients was the fact that at any tilne had Annstrong fel t HT
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could not meet its contractual obligations to its clients, these investments could be liquidated to
16
cover the shortfall. Federal Express and The Wall Street Journal were too quick to brand Mr.
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Annstrong a swindler and charge him with using a Ponzi scheme to defraud clients. In fact, the only
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reason the "hole" in HT was growing was because Mr. Annstrong purposely made it bigger to
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accomnlodate these long tern1 investments. This, o[course, is contrary to the govemnlent's position
20
21
that the hole kept getting bigger because Annstrong had to keep using ne\v client money to cover old
client obligations in order to keep facilitating the fraud. This mischaracterization by the govelllment
24 Had the govenllTIent 110t succumbed to the pressure to prosecute Mr. Anllstrong and, instead,
2S exercised SOlne prudence and waited for the outc01l1e of the civil case, the Federal District Court
2 have then realized that no crime was ever committed by Annstrong and they would have had the
3
final financial statements from the bankruptcy case to prove it. The government would have realized
4
that Federal Express and other HT clients caused their own losses (which ended up not being losses
5
at thanks to HT's long tenn investments) by destroYing a flourishing company.
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7
GOVERNMENTS FAILURE TO TIMELY DISCLOSE EXCULPATORY AUDIO
8
RECORDINGS:
9
Near the end of trial, Mr. Annstrong was notified the government was in possession of
10
approximately 70 hours of audio recordings obtained by one of Am1strong's long tilne personal
11
assistants, working for and paid by the government. The existence of the tapes and the identity of
12
the infonnant were not disclosed at any time prior to trial.
13
Since the existence of these tapes was not disclosed until trial was well underway, trial
14
counsel was prevented from reviewing the material prior to the end of trial. It wasn't until after trial
15
concluded that trial counsel was able analyze the tapes and realized the tapes were actually
16
exculpatory because the recorded conversations between Mr. Amlstrong and his assistant showed
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Mr. Armstrong~s lack of intent to defraud. Had the govemnlent disclosed this evidence in a manner
18
that would have allowed the court or the jury to hear the tapes during tria], the essential elenlent of
19
Hintent to defiaud" would have been conlpromi sed. Trial counsel requested a continuance whi ch was
20
21 denied. Further, trial counsel was unable to employ other counsel to review the tapes with trial
continued.
:23 In denyjng the motion for continuance, the Court relied upon the affidavit of FBI special
24 agent Hatcher. See exhibit #23. Special agent Hatcher testified that the seventy hours of tapes were
25 unrelated to the current prosecution and even underlined the word "unrelated" in his affidavit.
2 question were obtained via body wire placed on Mr. Amlstrong's personal assistant by the FBI.
3
Contrary to Agent Hatcher's assertion that the evidence was acquired by the Dallas FBI in an
4
unrelated investigation, FBI notes and men10randums reveal the recordings were obtained by the
5
request of and, under the authorizations of the US Atttomey for the Northern District of Cali fonli a,
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Mike Yamaguchi. See exhibit #23. Mike Yanlaguchi, of course, was the AUSA overseeing
7
Mr. Annstrong's prosecution for alleged fraud in the Northern Districl ofCalifomia. Therefore, not
8
only was the U.S. Attorney's office aware ofthe tapes, the goven1lnent was not honest with the court
9
by acting as if they didn't know they existed before trial. The pressure upon special agent Hatcher
10
to conceal the nature of the government's acquisition of the tapes is revealed by the memOrandUl11
11
from the Deputy Director of the FBI to a fomler Senator, along with the offices Nancy Pelosi and
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Barbara Boxer, outlining the progress of the investigation of Mr. Arnlstrong and HT. See exhibit
13
#20.
14
As stated previously, Mike YaJnaguchi had investigated HT for the exact same things in 1988
15
and detennined that no violations of federal law had been conlm.itted. See exhibit #8. The fact that
16
the FBI and U.S. Attorneys office decided to investigate and prosecute this case within nine days of
17
receiving pressure [rOlTI Howard Baker, Federal Express, Nancy Pelosi, Barbara Boxer, and the
18
media without any new evidence that HT had cOlnmitted a crinle Blakes the conceahnent of these
19
tapes even more egregious. The new" investigation of Amlstrong and HT consisted of gathering
Il
20
21 documents from an incomplete involuntary bankruptcy proceeding and trying to get a confession out
22 of Amlstrong by putting a wire on his closest personal assistant 9 . The fact that Anl1strong did not
23
2 is extremely credible evidence that he possessed no such intent. Rather, Mr. Annstrong believed
3 he wasn't doing anything wrong. The government's failure to produce this nlaterial~ exculpatory
4
evidence in a timely fashion is inexcusable and warrants a new trial in this case. See exhibit #23.
5
6
Ground Two
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The trial court's failure to properly instruct the jury on the applicable law of the case deprived Mr.
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Anl1strong of his Constitutional right to a fair trial and his right to due process. The trial court's
9
failure to give proper instnlctions not only confused the issues for the jury, but also improperly
10
allo\ved the jury to decide what the applicable law of the case was.
11
Supporting Facts:
12
In 1993, before the govemnlent secured an indictnlent against Amlstrong, the bankruptcy
13
tnlstee sought to recover preference payments paid to the IRS in the fonn ofpayro1l1axes by HT on
14
behalf of S&S credit. The judge on the bankruptcy case, ruled the monies in question were held in
15
tIllst by HT and, therefore, the trustee could not recover preference payments. 10 The trustee appealed
16
the ban]mlptcy comi' s decision to Federal District Court. The district judge, the sanle judge that
17
would ultimately preside over Annstrong's criminal trial, affirmed the banknlptcy court's decision,
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i.e., that the funds in question were held in trust by HT and, therefore, the trustee was not entitled
19
to recover those monies as preference payn1ents. The trustee then appealed the District Court's
20
21 decision to the 9 th Circuit. This appellate action was extremely important to the crinlinal case
22
:opreference payments are payments made by the debtor in a bankruptcy
23 proceeding to a creditor near in time to the bankruptcy action being filed.
Typically, these payments can be recovered by the trustee in an effort to
24 resolve the bankruptcy. However, preference payments can not be recovered
if the debtor was holding the money in trust. See In re Hamilton Taft v.
th
25 S&S Credit, 53 F.3d 285 (9 Cir. 1995).
fiduciary duty on the part of HT to its clients with regard to the monies. This is true because the
7
govemnlent lacked any evidence to prove Annstrong had the requisite "intent to defraud" needed
8
to prove a crime beyond a reasonable doubt. Therefore, the only legal basis the govenmlent could
9
rely upon to show the requisite "intent" of Armstrong was to claim the clients monies HT received
10
were to be held in trust.
11
The 9 th Circuit in 111 re Hamilton Taft v. S&S Credit, ruled against S&S Credit and the
12
government held that the funds in question were not held in trust by the debtor (HT), rather the
13
money was the property of the debtor. See 111 re Hamilton Taft v. S&S Credit, 53 F.3d 285, 288 (9 th
14
Cir. 1995)(opinion vacated as moot due to settlement agreenlent). The 9 1h Circuit stated:
15
111 this case, S&S does not contend that it committed a breach oftrust by conveying
16
the trust-fund taxes to Taft as consideration for Taft's promise to pay S&S 's tax obligations
17
and prepare the appropriate reports. Nor does S&S attempt to show that it arranged with
18
Taftfor the transferredfimds to be held in trust. J;Vhile two ofTaft 's clients arranged 10 have
19
their trust-fimd tax payments kept in segregated accounts, S&S and the other clients did 110t.
20
21 Instead, Taft extensively commingled all ofthefill1ds it received and treated thefilllds as its
22 own assets, using them to pay its operating expenses and investing the filllds for its OW11
23 benefit. Therefore, under ordinary principles of trust, Taft did not hold the funds ill trust.
24 Thus, the funds were the property ofthe debtor and the Jalluf.uy lax paymenls were subjecl
25
21
125.); See also exhibit #3 and #26. This motion to instruct the jury was, of course, based 011 the
22 language in the typical HT contract and on the 9 th Circuit's opinion in In re llamiltol1 T{~{t. 53 F.3d
23 285 (9 th Cir. 1995). As stated above, the Court concluded the funds were the property orthe debtor
24 (HT) and were not being held in trust for HT's clients. See Id. The district court denied the request
25 to instnlct the jury in this regard. The court stated that it did not think the 9 th Circuit's opinion was
3
At the end of tlia] , Annstrong proposed another jury instruction which essentially stated the
4
holding of In re Hamilton Taft as noted above. (ER 169.) The district court refused to give this
5
instruction also. Despite the 9 th Circuit's specific ruling on the how the funds in question were going
6
to be legally qualified, the district court stated it didn't think the nlonies could be treated by
7
Hanlilton Taft as its own assets. The court further stated it didn't think the monies could be used
8
to pay Hamilton Taft's operating expenses, nor did the court think the lTIOney could be invested by
9
Hanlilton Taft for its own benefit. The court went on to say, "1 think it's wrong." (RT 5473.)
10
The court's ruling did two things that affected Annstrong in an unfair maImer. First, even
11
though the court refused to give the requested instruction, in actuality no legal definitions or
12
instructions regarding "money held in trust" and 41nloney held pursuant to a debtor/creditor
13
relationship" were given to the jury. This improperly directed the j ury to detemline what the 1aw was
14
in this regard. This left the jury to detennine for itself what the law was, albeit incorrectly, before
15
applying the facts of this case to the law.
16
Secondly, the court's ruling opened the door to for the govenlment to argue that a trust
17
relationship existed between HT and its clients, even though-the HT client contracts specifically
18
stated otherwise. This gave the government an unfair advantage because it relieved the govemlnent
19
of its burden to prove Annstrong had an Hintent to defraud" beyond a reasonable doubt because the
20
21
jury was invited to lnerely aSSUlne the requisite "intent to defraud" ifHT held client nl0nies in trust.
22 Additionally, to conlpound matters, during sentencing the trial c0U11 used the preference
23 payments recovered by the trustee in bankruptcy to calculate the anlount of restitution Annstrong
24 owed. Therefore, the court used In re Hamiltoll Taft as a double edged sword against Amlstrong.
25 On the one hand, the 9 th Circuit's holding in Taft was not applicable at the guilt/innocence phase of
2 ordered Amlstrong to pay restitution for the preference payments Taft enabled the trustee to recover
3
by holding the funds in question were the property ofHT.
4
The simple fact of the matter is that in the years since In re Hamilton Taft was issued by the
5
9 th Circuit, many courts have relied upon the legal holding espoused in the 111 re Hamilton Taft
6
opinion even though the opinion was vacated as moot. Annstrong nlaintains the trial court's denial
7
of his request for jury instructions in line with the holdings of 111 re J-Iamiltol1 Taft demands a new
8
trial, and AnTIstrong prays this court order a briefing schedule on his motion so that the parties lnay
9
have an opportunity to brief these issues.
10
Conclusion:
11
The new evidence received by Mr. Amlstrong in this case delTIOnstrates a pattern ofbehaviof
12
by the government that was improper, lnalicious and resulted in the wrongful prosecution ofMr.
13
Annstrong. Clearly, this pattern of behavior was caused, in part, by erroneous press coverage,
14
corporate nlalfeasance, and improper political influence to pressure the govenlment to prosecute Mr.
15
Annstrong even though the goven1TI1ent believed he was innocent. Further, this new evidence
16
proves the United States Attorney's Office, namely Mike Yamaguchi, knew the crimes he sought
17
to indict Mr. Annstrong for had already been investigated by his office and the IRS, both of which
18
concluded no crinle had been committed. Additionally, Mike Y mnaguchi knew the 70 hours of
19
exculpatory audio tapes existed because he is the one that authorized the tapes be n1ade in the first
20
21
place. The government's failure to timely disclose these exculpatory rnateJials to the defense was
22 a willful Brady violation. Based on the foregoing infoDl1ation, Mr. Anl1strong prays the COllrt grant
23 a briefing schedule and an evidentiary hearing. Should tIle court grant Mr. AnTIstrong's motion
24 pursuant to 28 U.S.C. 2255 in this regard, Mr. Arnlstrong maintains the evidence should be declared
25 legally insufficient to support a conviction, his conviction should be vacated and ajudgment ofNot
2 In the alternative, both of the grounds raised in this Inotion are sufficient to warrant a new
3
trial in Mr. Annstrong's case. With regard to Ground Two the trial court's refusal to properly
J
4
instruct the jury on the law of the case clearly deprived Mr. Am1strong of his right to due process
5
and a fair trial, confused the issues for the jury, forced the jury to improperly deterrnine the
6
applicable law! and prevented Mr. Armstrong from mounting a defense to the charges against hin1.
7
Even if the COUl1 believes that neither one of the grounds raised in this motion are sufficient to
B
warrant a new 11ial, clearly the cUlTllllative effect of these issues warrants reversal ofthe conviction.
9
10
13. If any of the grounds listed in 12A, B, C, and D 'were not previously presented, state
11
brieny what grounds were not so presented, and give your reasons for not
12
presenting them:
13
These facts were not available to the defendant during the period of til11e
14
encompassing direct appeal.
15
16
14. Do you have any petition or appeal now pending in any court as to the judgnlent
17
under attack?
18
, Yes () No (x )
19
20
21 15. Give the name and address, if known, of each attorney ,vito represented you in the
25
12
(I) In any post-conviction proceeding
13
Bill Boyd
14
Boyd-Veigel, P.C.
15
218 E. Louisiana
16
McKinney, Texas 750769
17
(g) On appeal from any adverse ruling in a post-conviction- proceeding
18
Not applicable
19
20
16. \-Vere you sentenced on more than one count of an indictment, or on more than one
22 Yes (x ) No()
23 17. Do you have any future sentence to serve after you complete the sentence imposed
25 Yes() No(x)
2 evidence movant further prays the Court will set aside and vacate Mr. Armstrong ' s conviction and
3
grant any other relief the movant may be entitled to.
4
14
15 I declare under penalty ofpeIjury that the foregoing is true and correct.
18
~
19
20
21
22
23
24
25
-Time Line
-Flow Chart
-Exhibits:
1. Case Summary - USA v. Annstrong
Recall of Mandate
2. Indictment
3. HT Contract and Agreement
4. 2/8/91 Richard Held Memo to USA
5. Plaintiffs Original Petition - HT v. Maxphanna, et al
6. Case Sunm1ary - In re Hamilton Taft
7. Complaint - Bankruptcy Court - In re Hamilton Taft
8. 9/23/88 Richard Held Memo to USA
9. Yamaguchi History
10. Dresdner Note to HT
II. 10/29/81 Kimport Letter (Baker letter)
12. 3/8/91 FBI Memo
13. Financial Records
14. Civil Complaint - Federal Express v. HT
15. Involuntary Petition - In re Hamilton Taft
16. Ralph King - Wall Street Journal Article
17. 3/17/91 FBI Memo
18. Ralph King - Wall Street Journal Article
19. MemorandulTI in support of Application for TRO
20. 4/3/91 FBI Memo
21. Memorandum in support of Motion to Dislniss - United States
v. Connie Annstrong, Jr. and Richard Fowles
22. ] 999 Hemming Morse Trustee Report
22(a). 1991 Hemming Morse Trustee Report
23. Hatcher Affidavit and Associated Doeulnents
24. Case Law and Order of Affinnanee - HI' v. S&S Credit
25. Alnicus Brief
26. Transeripts
CONNIE "CHIP" ARMSTRONG
TIMELINE
1979
Hamilton Taft, Inc. created.
August 1984
Hamilton Taft sold to Cigna Corporation.
March 1989
Connie llChip" Armstrong acquires
Hamilton Taft 'from IVlaxphrama.
December 1990
Steve Solodoff fired from employment
at Hamilton Taft as a result of his cocaine use.
TIMELINE
0509647/060452/5: 1:09: 14:45
Page 1
December 24, 1990
Solodoff approaches the FBI and IRS and files complaint
against Armstrong and Hamilton Taft alleging that
Armstrong was diverting trust monies. This was the same
allegation investigated by Yamaguchi in 1988.
I
February 8, 1991
Letter sent from Special Agent (PKM) to USA McGivern and
AUSA Yamaguchi asking for a prosecution opinion at to whether
a violation of federal law had taken place. This letter discusses
the history of the 1988 investigation. It further discusses Baker
and McKensie, the lobbyist and law firm representing Federal
Express, and the former law firm of Hamilton Taft.
(See 2/8/91 letter)
I
February 11, 1991
Solodoff contacts ofFices of Congress persons Pelosi and Boxer.
A representative of Congresswoman Pelosi gave Solodoff the
name of an investigative reporter to contact with his information
about Hamilton Taft.
(See 3/8/91 PKM memo)
I
February 12, 1991
Special Agent PKI\/I and an agent from CID receive calls from
an attorney at the Department of Justice inquiring as to
any FBI and/or IRS connection with Hamilton Taft.
(See 3/8/91 PKM memo)
TIMELINE
0509647/060452/5: 1:09: 14:45
Page 2
February 13, 1991
Special Agent PKM interviews Solodoff.
(See 3/8/91 PKM memo and 3/6/91 PKM 302)
I
March 6, 1991
Special Agent PKM receives call from Special Agent Swain,
IRS-CID. Swain reports that he had been contacted by
Ralph King, investigative reporter for the Wall Street Journal.
King wants to confirm that the IRS is conducting an
investigation into Hamilton Taft.
(See 3/8/91 PKM memo)
I
March 6, 1991
Special Agent PKM, having been out of the office on March 5th ,
finds a telephone message dated 3/5/91 from Ralph King. King
finally connects with PKM on the 6th . King questions about a
possible FBI investigation of Hamilton Taft.
(See 3/8/91 PKM memo)
I
March 6, 1991
Special Agent PKM speaks with representative of Sun Micro
Systems. Sun Micro has been contacted by an individual
advising Sun Micro that they, and numerous other
Hamilton Taft clients, had become the victims of fraud
perpetrated by Hamilton Taft.
(See 3/8/91 PKM memo)
TIMELINE
0509647/060452/5: 1:09: 14:45
Page 3
March 8, 1991
A meeting of the alleged victims of Hamilton Taft meet at the
offices of Sun Micro Systems to discuss the matter.
(See 3/8/91 PKM memo)
I
March 13, 1991
Federal Express files civil suit against Hamilton Taft in
Federal District Court, Northern District, California. FedEx's
request for TRO freezing Hamilton Taft assets is denied.
An evidentiary hearing is scheduled for August 1991.
I
March 14, 1991
After refusal of the TRO, Federal Express files
to force Hamilton Taft into involuntary bankruptcy.
I
March 15, 1991
An unfavorable and erroneous article about Hamilton Taft is
published on the front page of the Wall Street Journal.
I
March 17, 1991
In response to the allegations in the Wall Street Journal,
a federal investigation into Hamilton Taft and
Connie Armstrong is initiated. This occurs only
nine days after the FBI memo stating that there exists
insufficient information to launch an investigation.
TIIVIELINE
0509647/060452/5: 1:09: 14:45
Page 4
March 20, 1991
Federal Express amends its complaint seeking relief
through the involuntary bankruptcy of Hamilton Taft.
I
March 25, 1991
Hamilton Taft is placed into bankruptcy. Armstrong is
removed as head of company and a Trustee is appointed.
I
April 2, 1991
Trustee files for immediate TRO in bankruptcy court.
Bankruptcy court grants motion resulting in Fed Ex's successful
freezing of Hamilton Taft assets without evidentiary hearing.
I
April 3, 1991
FBI sends memo to former senator, Federal Express board
members, Congress persons Pelosi and Boxer's offices
detailing the actions of the DOJ and discussing
the media coverage.
(See 4/3/91 memo)
I
December 31, 1991
Trustee report indicates that Hamilton Taft's value was
calculated at roughly five million dollars ($5,000,000).
-rhis was the report which was relied upon
throughout the criminal proceedings.
(See Trustee Report 12/31/91)
TIMELINE
0509647/060452/5: 1:09: 14:45
Page 5
1993
Trustee of Hamilton Taft files suit against S&S Credit to seek
recovery of preference payments made by Hamilton Taft on
behalf of S&S Credit. The bankruptcy court denied the motion.
Trustee appeals decision to the Federal District Court.
1994
Federal District Court affirms decision of bankruptcy court in In
Re Hamilton Taft v. S&S Credit. Trustee appeals Federal
District Court's decision to the 9th Circuit Court of Appeals.
May 2, 1995
lh
9 Circuit Court of Appeals decides in favor of
Hamilton Taft in In Re Hamilton Taft v. S&S Credit.
August 1995
AUSA Yamaguchi files Amicus Brief on behalf of the IRS.
The brief raises the issue already decided by the
9th Circuit Court of Appeals.
Fall 1995
ll
S&S Credit and the Trustee Usettle As part of the settlement
•
I
TIMELINE
0509647/060452/5: 1:09:14 :45
Page 6
October 12, 1995
In Re Hamilton Taft v. S&S Credit opinion vacated as moot.
I
December 1996
Trial begins in Armstrong criminal case. Despite the
fact that a sUbsequent analysis was conducted, the
December 31, 1991 Trustee's report is relied upon
to assess the value of Hamilton Taft.
(See Trustee Report 12/31/91)
I
February 26, 1997
Trial concluded.
I
September 13, 1999
Hemming Morse Trustee report is released.
This report shows the liquidation of Hamilton Taft for roughly
one-hundred thirteen million dollars ($113,000,000)
an amount far greater than the five million dollar value
previously reported in the December 31, 1991 study.
(See Trustee reports 9/13/99 and 12/31/91)
TIMELINE
05096471060452/5: 1:09: 14:45
Page 7
Howard Baker and Senators --I!lIl. ....- - - (
The ~_aard af Feder;:;1 Er.press
'1
DOJ - Wasl}h1gton Dl:
...I;.lea;,.d;numbl!r
.;,u; ;S.;.;A,;,t~t.o..rof...n..;evitimes 19DD-Closed Investigation for a Criminal on
[ ·._, __....,......caFBI oi a.:.;n;,;;d....._ _- ' Illegal Acts. Refused to JODI: Into It until DOJ
From DC ca).l.ed.
If you view the full dockc. ...mline, you will be charged for 6 Pages Jl 0.42
=====P=A=C=E=R=s=e=r=v=i=c=e=c=e=n=t=e=r=======ill
i:=!
Defendant-A ppellant.
conslrued, lhe motion is granted. We recall the mandate issued on February 10,
2003.
The panel has voted to deny the petition for panel rehearing.
The full court has been advised of lhe petition for rehearing en bane and no
judge has requested a vote on whether to rehear the matter en banco See Fed. R.
I\pp. P. 35.
The petition for panel rehearing and lhe petition rOf rehearing en bane are
KH/Rcscilrcn
i,
~
, ..
..
4t .' FIL:!:O
~WIW e, '9~~
No. _
__:lII::II:I:::=:I:l=:=:-==:=:Z:::=======~""'...l.L'! NO~ltuli~/rm~~~~ ''C/I
INDICTMENT
18 U.S.C. § 2314 - STOLEN PROPERTY;
18 U.S.C. § 1343 - WIRE FRAUD
18 U.S.C. § 2 - AIDING AND ABETTING
Forrman
of A.D. 19 _
Bail. $ t~
(7~ I,
".
1"""~V ollbJ
[,.~. ,D-~FE.NDANT INFORtviA' 'I nl --I.TIVE TO A CRIMINAL AC' W'-=--- U.S. DISTRICT COURT
~'[,y OCOM~LAINT DINFORMA1,U BINDICTMENT N~me 01 Dllllla COU". anolor Juagel~tltee~ 1 ' 0
o me~no(
Felonv
FBI 1) fLl Has nOt been arresteo. pending outcome this proceeding
If not detained give date any prior summons ~
was served on above charges [L.... _
o
--
person IS awaiting tnal in another Federal or State Court. Is a Fugitive
gIve name ot coun Is on Bailor Rf'lease trom (show District)
.
N~me
III
01 AUl
u"9"eal
u.s, AlI'V Eb F. Luckel
o ThIS repOrt amenas AO 257 prevlouslv sUbm'lted
NO PROCESS'"
~WHERE DEFENDANT PREVIOUSLY APPREHENDED ON COMPLAINT; NO NEW SUMMONS
OR, WARRANT NEEDED, SINCE MAGISTRATE HAS SCHEDULED ARRAIGNMENT
...
, -
1 ORIGINAL
MICHAEL J. YAMAGUCHI
2 United states Attorney FILED
10 Plaintiff,
) YIOLATION: Title 18, united
11 v. ) States Code, Section 2314 -
} STOLEN PROPERTY; Title 18,
12 CONNIE C. ARMSTRONG, JR. and .) United States Code,
RICHARD A. FOWLES, ) Section 1343 - .WIRE FRAUD
13 ) Title 18, United ~tates Code
Defendants. ) Section 2 - AIDING AND
14 ) ABETTING
15 I N DIe T MEN I
' ..
16
INTROPUCTORY bLLEGA1IONS
17
The Grand Jury charges that:
18
1. Hamilton Taft & Company, Inc. ("Hamilton Taft")
19
",as incorporated in California in 1979. Its business was to
20
provide payroll tax services to companies ("clients") with
21
large payrolls. Clients transferred funds to pay their payroll
22
taxes to Hamilton Taft, and Hamilton Taft was, in turn,
23
obI ig~.~ed to pay the ·taxes to the Internal Revenue Service and
24
·to-other taxing authorities when they were due.
25
2. ,Funds for' federal income and soclalsecurity
26
taxes withheld from employees· wages accounted for most- of the
Exhibit "1\"
000001
.- If
1
funds transferred to Hamilton Taft~__ A company with a large
2
payroll is required to pay these federal taxes to the IRS each
3
time its employees are paid, commonly twice a month.
4
. .... . 3• Hamilton Taft had the use of funds it received
,,~. ~.5 . 'li>
fram clients for limited periods of time before the taxes were
6
due. In the case of federal income and social security taxes,
7
Hamilton Taft had use of the funds for a day or less, except
B
for the "safe haven," an amount equal to five percent of the
9
tax, which was due as much as sixty days later. Most of
10
Hamilton Taft's income was earned by investing the funds it
11
received to pay its clients' taxes in risk-free, short term,
12
liquid investments.
13
4. In addition to paying taxes, Hamilton Taft often
14
provided other servic~s, such as preparing and filing Quarterly
15
Employer Tax Returns, Forms 941. These tax returns are due the
16
last day of the month folloving the end of each quarter.
17
5. The IRS assesses penalties for payroll taxes
18
that are not paid when due, cplled "failure to deposit lt
19
penalties. Absent reasonable cause, vhen any tax payment is
20
missed, a failure to deposit penalty will be assessed, even"if
21
the tax has been paid by the time the quarterly tax return is
22
due. The IRS usually bills a taxpayer for a failure to deposit
23
penalty several months after the tax return for the quarter is
24
filed. If taxes remain unpaid after the quarterly tax return
25
26 I N DIe T MEN T
(Armstrong , .Fowles) 2
000002
•
1
is filed, an additional penalty, called a "failure to pay"
2
penalty, of one-half percent per month, is assessed and
3
interest is charged on the unpaid balance. The IRS usually
bills a taxpayer for a failure to pay penalty shortly after the
5
quarterly tax return is filed. Thus, failure to pay penalties
6
are typically due months earlier than failure to deposit .
7
penalties.
8
6. Connie C. Armstrong, Jr. ("Armstrong") acquired
9
Hamilton Taft on or about March 3~. 1989. At that time,
10
Hamilton Taft had a working capital deficit of over $14 ~il11on
11
~ue to misappropriations by prior owners of funds received from.
12
clients. The deficit'created a shortage of funds to pay taxes,
13
but taxes could still be paid on time because some of the funds
14
received, such as funds for the five percent safe-haven and for
15
var}ous state and local taxes, were not due immediately. This
16
enabled Hamilton Taft to cover shortages from later collections
17
of funds without falling behind in the payment of taxes and
18
incurring penalties.
19
7. From Armstrong's acquisltion of Hamilton Taft in
20
March 1989, to March 1991, when a trustee in bankruptcy was
21 .
appointed to run Hamilton Taft, Armstrong was Hamilton Taft's
22
chief executive officer and its sole director and shareholder.
23
During much of this time, Richard A. Fowles ("Fowles") was
24
president of Hamilton Taft. At other times, Fowle~-served-
25
26 I N DIe T MEN T
(Armstrong & Fowles) 3
000003
1
Hamilton Taft or a related entity ~~other capacities.
2
PREAMBLE TO COUNTS ONE THROUGH TWENTY-ONE
3
The Grand Jury 'furthe r charges tha t :
4
8. Beginning around March 31, 1989, and continuing
5
thereafter to around the end of March, 1991, in the City and
6
County of San Francisco, state and Northern District of
7
California, and elsewhere,
8
CONNIE C. ARMSTRONG, JR.,
9
defendant herein, knowingly aided and abe~ted by
10
RICHARD A. FOWLES,
11
defendant herein, devised and intended to devise a schemenand
12
artifice to defraud and to obtain money from companies that had
13
contracted with Hamilton Taft for payroll tax services by means
14
of false and fraudulent pretenses, representations, and
15
promises. The, scheme is described in paragraphs 9-23.
16
o The piyersions
17
9. Armstrong caused funds received by Hamilton Taft
18
for the payment of taxes to be diverted to companies he
19
controlled for investment purposes and operati~g costs, or to
20
himself for personal expenditures. In less than two years,
21
approximately $55 million (net) vas taken out of Hamilton Taft
22
for these purposes and replaced with various notes and bonds.
I
23
10. The investments made with the diverted funds
24 .
included the purchase of 011 and ~as leases, participation in a
25
26 I N DIe 'j-M E N T
(Armstrong & Fowles) 4
- I
,-
000004
, "
(J
1
shopping center joint venture, and_p~rchases of various real
2
estate interests. The operating costs paid with diverted funds
3
included skyboxes at Texas Stadium and a lavish Fourth of JUly
4
party. The personal expenditures of diverted funds included
5
the purchase of a ranch and political and charitable
6
contributions.
7
The Holding Back of Tax Payments
8
~1. As a result of the diversions, Hamilton Taft was
9
unable to pay all of its clients' taxes when they were- due]
10
When tax payments were not made when due, penalties, which
11 '.
Hamilton Taft was responsible for paying, were incurred. This
12
increased the need to hold back more taxes because more funds
13
were needed to pay the penalties.
14
12. The non-payment of taxes began in the third
15
quarter of 1989 when approximately $25.• 3 million in tax
16
payments were held back. Beginning in the first quarter of
17
1990, Armstrong caused taxes to be held back each quarter. The
18
holding back of taxes increas~d as follows:
19
First Quarter 1990 $19.4 million
20
Second Quarter 1990 --- $37.8 million
21
Third Ouarter 1990 ---- $45.0 million
22
Fourth Quarter 1990 --- $57.0 million
23
First Quarter 1991 ---- $68.2 million
24
13. As time passed, Hamilton Taft became
25
26 I N DIe T MEN T
(Armstrong , Fowles") 5
"-
000005
l.J
1
~ncreaSinglY dependen~ o~ the rece!p~ of additional funds from
2 ~ . r
clients to pay the taxes of clients whose taxes had been held
3
back earlier and to pay penaltiesJ By the time the trustee in
4
bankruptcy was appointed to take over Hamilton Taft in March
5
1991, the cash shortage to pay taxes had increased to
6
approximately $85 million and the unpaid penalty liability was
7
approximately $8 million more.
8
The Penalties
9
14. The holding-back of taxes resulted in a penalty
10
liability to Hamilton Taft of approximately $15 million. By
11
the time the trustee in bankruptcy was appointed, approximately'
12
$7 million of this liability had been paid. The penalty
13
liability alone: vastly' 'exceeded Hamilton Taft's income, even
14
wi thout consideration of' i ts othe~ operating expenses •
.15
The Fraud In the Inducement
16
15. It was part of the scheme to fraudulently induce
17
companies to enter into tax service agreements ("contracts")
18·
with Hamilton- Taft~. J
19
16. Acting through regional sales representatives,
20
Armstrong attempted to sell Hamilton Taft's payroll tax
21
services to large companies throughout the United states.
22
During initial contacts and throughout the negotiations,
23
prospective clients were assured that Hamilton Taft was capable
24
of professionally and reliably providing all the payroll tax
25
26 I N DIe T MEN T
(Armstrong' Fowles) . b
000006
1
services it offered including, mosL}mportantly, the timely
2
payment of payroll taxes. Potential clients were encouraged to
3
contact existing Hamilton Taft clients as references and were
4
led to believe that Hamilton Taft was financially secure.
5
17. As 8 result, between June 1989 and early 1991,
6
Hamilton ~aft~ntered into new customer contracts with clients
7
whose aggregate annual payroll tax lia~llity exceeded $1
8
billion] Each contract provided that Hamilton Taft would pay
9
the client's payroll taxes when they---were due prov-ided certain
10
conditions were met.
11
\18. As Armstrong and Fowles knew, these contracts
12 L
were fFaudulently induced, because Armstrong had already begun
13
to divert funds needed for taxes and:~e:~ad no intention of
14
paying all the clients' taxes vhen the~ vere due~ More~ver, as
15
time passed and the capital deficit of Hamilton Taft
16
dramatically increased, Armstrong and Fowles knew that it would
17
be impossible to pay all the taxes Hamilton Taft was
18
responsible for paying. By t~e time the trustee in bankruptcy
19
was appointed, the overdue payroll tax liability was
20
approximately $91 million, of which over half was for clients
21
who signed contracts after Armstrong's acquisition of Hamilton
22
Taft. Hamilton Taft had only approximately $5 million to pay
23
these taxes.
24
II
25
26 I N DIe T MEN T
(Armstrong, Fowles) 7
000007
-- r .
1
The Coyer-yp
2
19. It was also part of the scheme to fraudulently
3
conceal the diversions, the systematic holding back of tax
4
payments, the magnitude of the resulting penalties, and
5
Hamilton Taft's ever-increasing dependence on recently received
6
funds for taxes to pay the taxes of clients whose taxes had
7
been held back earlier. This concealment enabled Hamilton Taft
8
to continue to' receive funds from its clients, to avoid massive
9
cancellat ions of its contracts, and- to preserve the opportuni ty
10
for new business.
11
False'Tax Returns are-Filed
12
20. In the third quarter of 1989, when approximately
13
$25.3 million in f~deral payroll taxes were not paid, Armstrong
14
and Fowles approved the filing of approximately one hundred
15
false Employer's Quarterly Tax Returns, Forms 941, for the
16
calendar quarter ending September 30, 1989. Each return
17 0
falsely stated that all the taxes for the quarter" had been
lB-
paid. The- clients who receiv~d these returns were thereby
19
falsely led to believe that all their taxes had been paid.
20
Later, when the IRS discovered the shortage and notified the
21
clients and Hamilton Taft, the clients who inquired were again
22
deceived when Hamilton Taft employees, at Armstrong and Fowles'
23
direction, falsely stated that the reason for the non-payments
24
was a temporary problem with Hamilton Taft's computer software
25
26 I N DIe T MEN T
(Armstrong & Fowles) 8
000008
1
or was due to 8 "banking problem." _
2
Ibe Cover-up Method Changes
3'- 21. Beginning in the first quarter of 1990,
4
Armstrong directed the systematic holding back of taxes early
5
in a quarter, intending that the taKes would be paid around the
6
time the employer quarterl~ tax ~eturns were due to be filed
7
several months later. After the end of each quarter, when the
S
-tax return filing'dat~ was near, the unpaid taKes were paid
9
wi th funds
.
rece 1ved from othe r cl len ts----whose own taxes we re
.
10
about to be d4e. Another, larger round of holding back taxes
11·
D ovas then ~ecessary. By choosing to pay past due taxes instead
12
. of currently
... due ta~es, Armstrong was able to delay,' for a much
.. ·.13 .
_... ~ ... . .longer time,a.dJscov~ry by the clients that their taxes had been
~ r4~· ..;.. ~ .~ ~:,I' .' • . ;. • . a
.j',r/.. ~· -:
···1~'·
"Da ~ ·la te~: -:-~Af
~.~'.. '. .
the "same . time, he was able to cre a te the false
.' .
.~. .' ·i~dression that ·Hamilton Taftls bu'siness was running smoothly.
:.'. .1).6. . '
'2 • .
I In' fact,. Hamilton Taft was 'insolvent and heading toward
i7, '·0
000009· ~.'
1
Selected Clients' Taxes L~re Not Held Back
2
22. Some of Hamilton Taft's clients had contracts
3
that required Hamilton Taft to verify each deposit of federal
4 0
23.
Finally, in early March 1991, when a"Hamllecm'_-',oI_'"' "
16 '~:':.~ ~:=:.~~.:.. .... -" 'oi": ~-~:. . ~'Q .-
Taft employee notified some of the clients of th'e:'- s-ys tema " .
t -ri:7~
. "
'jlo'
, ~
-
~
•
17
diversion of funds and the non-payment of taxes, Armstrong .,
18
falsely 'represented' tq many <:...1 ients that th~ allegaEions were
19
false and that taxes. had been pa id la te-·-ohly' oCQas Lonally.' ,
20 .. D
Armstrong also attempte~ to disseminate this false account·
21
through the media.
22
24. The language contained' iil paragrap~sQ.,8 - i3 is'
23
incorporated by reference in Counts One through T~enty-One .'
24
25
26
" .. .
-
':-
:.:~'.,
\ ....
..... '.. '-" ..
:-.--:
..
' ~-
~
:'
:J
"~.
.' •
~ ,.
26
..
.- ~- :i-: . . - • .1 _ ._
.- 000011
1
did knowingly and for the purpose ~f-executing the scheme,
2
3
cause and induce representatives of R. R. Donnelley & Sons
"""'-- ---~- _.- -- .... _.,
10
-_.--
On or about June 6, 1990,
__ . . -.
,.
in the Northern District of
California and elsewhere,
11
CONNIE C. ARMSTRONG, JR.,
12
defendant herein, having devised and intending to devise a
13
scheme and artifice to defraud and to obtain money by means of
14
false and fraudulent pretense~, representations and promises,
15
did knowingly and for the purpose of executing the scheme,
16
cause and induce representatives of Scott Pa~r Company to
17 ---- ---- - .-. . .
travel in interstate commerce from Philadelphia, PA, to San
18.
Francisco, CA, for a meeting ~ith Hamilton Taft representatives
19
concerning Hamilton Taft's proposal to provide payroll tax
20
services to Scott Paper Company.
21
II
22
II
23
II
24
II
25
26 .'I . "N-- D I e T ME· N T
(Armstrong & Fowles) 12
000012
1
COUNTS RELATING TO TAX SERVICE AGREEMENTS
2
COUNT FOUR: (18 U.S.C. § 1343, 2)
3
The Grand Jury further charges that:
4
On or about December 5, 1989, in the Northern
5
District of California, and elsewhere,
6
CONNIE C. ARMSTRONG, JR. and
7 RICHARD A. FOWLES,
8 defendants herein: for the purpose of executing the scheme to
9 defraud and to obtain money by means of false and fraudulent
10 pretenses, representations, and promises, and attempting to do
11 so, did knowingly cause to be transmitted by means of wire
26 I N D I C T MEN T
(Armstrong & Fovles) 13
00001& ·
1
signed Tax Service Agreement from the Kendall Company in
2
Boston, MA, to Hamilton Taft in San Francisco, CA.
3
COUNT SIX: (18 U.S.C. ~ 1343)
4
The Grand Jury charges that:
5
On or about September 18, 1990, in the Northern
6
District of California, and elsewhere,
7
CONNIE C. ARMSTRONG, JR.,
8
defendant herein, for the purpose of executing the scheme to
9
defraud and to obtain money by means of false and fraudulent
10
pretenses, representations, and promises, and attempting to do
11
so, did knowingly cause to be transmitted by means of wire
12
communication in interstate commerce a facsimile copy of a
13
signed Tax Service Agreement fr9m Jim Beam Brands Company and
14
JBB Spirits Inc. in Deerfield, IL, to Hamilton Taft in San
15 o
Francisco, CA. " ...
• Q. o
16 .- ,. o
17
COUNTS
. RELATIN6
.
..
.
TO THE DIYIRSION' Of FUNDS NEEPED FOR TAXES -
.
(18 U.S.C. §, 1343,. 2» • Do·
18
The Grand Jury futtber charges that:
19
000014
1
knowingly cause to be transmitted ~y_means of wire
2
communication 1n interstate commerce from a Hamilton Taft Smith
3
Barney account in Newport Beach, CA, to State street Bank &
4
Trust Company, Boston, MA, f/b/o Dresdner Enterprises, Inc., a
5
money wire transfer in the amount of $1 million.
6 -------
QQUNT EIGHT: (18 U.S.C. §§ 1343, 2)
7
The Grand Jury further charges that:
8
On or about November 14, 1989, in the Northern
9
District of California and elsewhere,
10
CONNIE C. ARMSTRONG, JR. and
11 RICHARD A. FOWLES,
12 defendants herein, for the purpose of executing the scheme to
13 defraud and to obtain money by false and fraudulent pretenses,
14 representations, and promises, and attempting to do so, did
15 knowingly cause to be transmitted by means of wire
16 communication in interstate commerce from a Hamilton Taft"Bank
17 of America account in San Francisco, CA, to state street Bank
16 and Trust Company, Boston, MA, f/b/a Dresdner Enterprises,
19 Inc., a money ~ire transfer i; the amount of $1.1 million.
20 II
21 II
22 II
23 II
24 II
25 II
26 I N Die THE N T
(Armstrong' Fowles) 15
000015
1
CQUNT NINE: (18 U.S.C. ~§ 1343, 2L_
2
The Grand Jury further charges that:
3
Qn or about February 8, 1990, in the Northern
4
District of California and elsewhere,
5
CQNNIE C. ARMSTRONG, JR. and
6 RICHARD A. FQWLES,
19 -
CONNIE C. ARMSTRONG, JR. and
RICHARD A. FOWLES,
20
defendants herein, for the purpose of executing the scheme to
21
defraud and to obtain money by false and fraudulent pretenses,
22
representations, and promises, and attempting to do so, did
23
'~nowihgly cause to be transmitted by means of wire
26
.
I N D I C T MEN T
(Armstrong & Fowles) 16
OQOOl6
L1 c'
1
of America account in San Francisc~~_CA, to a Dresdner
2
Petroleum, Inc., Bank One account in Dallas, TX, a money wire
3
transfer in the amount of $4 million.
4
COUNT ELEVEN: (18 U.S.C. 0 1343)
5
The Grand Jury further charges that:
6
On or about September 4, 1990, 1n the Northern
7
District of California and elsewhere,
8
CONNIE C. ARMSTRONG, JR.,
9
defendant herein, for the purpose of executing the scheme to
10
defraud and to obtain money by false and fraudulent pretenses,
11
~epresenta~ions, and promises, and attempting to do so, did
12
knowingly cause to be transmitted by means of wire
13
communication in interstate commerce from a Hamilton Taft Bank
14
of America account in San Francisco, CA, to First National Bank
15
of Chicago, Chicago, Illinois, [Ib/o Winthrop Realty ~ompany, a
16
money wire transfer in the amount of $2 million.
17
COUNT TWELVE: (18 U.S.C. § 1343)
18 ..
The Grand Jury furtper charges that:
19
On or about September 10, 1990, in the Northern
20
District of California and elsewhere,
21
CONNIE C. ARMSTRONG, JR.,
22
defendant herein, for the purpose of executing the scheme to
23
defraud and to obtain money by false and fraudulent pretenses,
24
repre~entations, and promises, and attempting to do so, did~ • I -: .~.
25
. ....
26 I N D I C T MEN T
(Armstrong & Fowles) 17
000017
c. I
1
knowingly cause to be transmitted ~y_means of wire
2
communication in interstate commerce from a Hamilton Taft
3
Security Pacific account in San Francisco, CA, to a Remington
4
Companies, Inc. Bank One account in Dallas, TX, a money wire
5
transfer in the amount of $1.7 million.
6
COUNT THIRTEEN: (18 U.S.C. § 1343)
7
The Grand Jury further charges that:
8
On or about September 12, 1990, in the Northern
9
District of California and elsewhere,
10
CONNIE C. ARMSTRONG, JR.,
11
4efendant herein, for the purpose of executing the scheme to
12
defraud and to obtain money by false and fraudulent pretenses,
13
representations, and promises, and attempting to do so, did
14
knowingly cause to be transmitted by means of wire
15
communication in interstate commerce from a Hamilton Taft
16
Security Paclflc account in San Francisco, C~, to a Remington
17
Companies Inc. Bank One account in Dallas, TX, a money wire
18
transfer ·in the amount of $3.) million.
19
COUNT FQURTEEN: (18 U.S.C. § 1343)
20
The Grand Jury further charges that:
21
On or about December 5, 1990, in the Northern
22
District of California and elsewhere,
o .
23
CONNIE C. ARMSTRONG, JR.,
24
defendant herein, for the purpose of exec~ting the scheme to
25
26 I N DIe T MEN T
(Armstrong ~ Fowles) 18
O~0018
1
defraud and to obtain money by false and fraudulent pretenses,
2
representations, and promises, and attempting to do so, did
3
knowingly cause to be transmitted by means of wire
-4
communication 1n interstate commerce from a Hamilton Taft
5
Security Pacific account in San Francisco, CA, to a
6
Knightsbridge Treasury Bank One account in Dallas, TX, a money
7
wire transfer in the amount of $1.1 million.
8
COUNTS RELATING TO THE PAYMENT OF LATE TAXES
9 WITH FUNDS RECEIVED fOR CURRENTLY DUE TAXES
10 COUNT FIFTEEN (18 U.S.C. § 2314, 2 )-- JS-R Do4Z7JJ..r~
26 I N DIe T H tNT
(Armstrong' Fowles) 19
0000]9
- ,
L
1
COUNT SIXTEEN: (18 U.S.C. § 2314)
2
The Grand Jury further charges that:
3
On or about August 1, 1990, 1n the Northern District of
4
California, and elsewhere,
5
CONNIE C. ARMSTRONG, JR.,
6
defendant herein, did cause to be transported in interstate
7
commerce from Hamilton Taft 1n San Francisco, CA, to the North
8
Carolina National Bank in Ashville, NC, securities having an
9
aggregate value of approximately $37.8 ml111on,~knowing that
10
the securities were traceable to funds that were wrongfully
11
~onverted and taken by. fraud.
12
COUNT SEVENTEEN: (18 U.S.C. § 2314)
13
The Grand Jury further charges that:
14
On or about November 1, 1990, in the Northern District of
15
California, and elsewhere,
16
CONNIE C. ARMSTRONG, JR.,
17
defendant herein, did cause to be transported in interstate
18
commerce from Hamilton Taft in San Francisco, CA, to the North
19
Carolina National Bank in Ashville, NC, securities having an
20
aggregate value of approximately $45.0 million, knowing .that
21
the securities were traceable to funds that were wrongfully
22
converted and taken by fraud.
23
1/
1/
26 1 N DIe T MEN T
(Armstrong & Fowles) 20
000020
.-' c.·
1
COUNT EIGHTEEN: (18 U.S.C. ~ 23 14 1__
2
The Grand Jury further charges that:
3
On or about February I, 1991, in the Northern District of
4
California, and elsewhere,
5
CONNIE C. ARMSTRONG,
6
defendant herein, did cause to be transported in interstate
7
commerce from Hamilton Taft in San Francisco, CA, to the North
8
Carolina National Bank in Ashville, Ne, securities having an
9
aggregate value of approximately $57.0 million, knowing that
10
the securities were traceable to funds that were wrongfully
11
converted and taken by fraud.
12
COUNTS RELATING TO THE DENIAL OF SOLOPOFF'S ALLEGATIONS
13
COUNT NINETEEN: (18 U.S.C. § 1343)
14
The Grand Jury further charges that:
15
On or about March 12, 1991, in the Northern District
16
of California,
17
CONNIE C. ARMSTRONG, JR.,
18
defendant here~n, for the purpose of executing the scheme to
19
defraud and to obtain money by false and fraudulent pretenses,
20
representations, and promises, and attempting to do so, did
21
knowingly cause to be transmitted by means of wire
22
communication in interstate commerce fro~ San Francisco, CA, to
23
Advo System Inc., Windsor, CT, a facs imile let~eI'_ dated· March
24
12, 1991, signed "Connie C. Armstrong, Jr."
25
26 I N DIe T H:E N T
(Armstrong & Fowles) 21
000021
-
1
COUNT TWENTY: (18 U.S.C. § 1343)
2
The Grand Jury further charges that:
3
On or about March 12, 1991, in the Northern District
4
of California,
5
CONNIE C. ARMSTRONG, JR.,
6
defendant herein, for the purpose of executing the scheme to
7
defraud and to obtain money by false and fraudulent pretenses,
B
representations, and promises, and attempting to do so, did
9
knowingly cause to be transmitted by means of wire
10
communication in interstate commerce from San Francisco, CA, to
11
Federal Express Corporation, Memphis, TN, a facslml~e ~etter
12
dated March 12, 1991, signed "Connie C. Armstrong, Jr."
13
COUNT TWENTY-ONE: (18 U.S.C. § 1343)
14
The Grand Jury further charges that:
15
On or about March 12, 1991, in the Northern District
16
of California,
17
CONNIE C. ARMSTRONG, JR.,
18
defendant herein, for the purpose of executing the scheme to
19
defraud and to obtain money by false and fraudulent pretenses,
20
representations, and promises, and attempting to do so, did
21
II
22
II
23
II
24
II -
25
26 I N DIe T MEN T
(Armstrong & Fowles) 22
000022
1
knowingly cause to be transmitted Qy_means of wire
2
communication in interstate commerce from San Francisco,
3
Scott Paper Company, Philadelphia, PA, a facsimile letter
4
c March 12, 1991, signed "Connie C. Armstrong, Jr."
5
DATED: A TRUE BILL.
6
rHE DEf
7
----,: pleac
:--: 8 FOREPERSON
'0
\
pleat
whic
9
7\ was
~ aftE 10
Title 8L 11
18U.S. 12 Approved as to Form: tv1V
AUSA: LUCKEL
13
18 U.~
14
15
16
17
to th l
18
19
20
21
)e
22
Of
23
24
25
26 I N DIe THE N T
(Armstrong & Fowles) 23
-- PAYROLL TAX SERVrC~
This Aoreement is made and entered into as of the Twelfth day of October
1983 by and between S ta:1(ord University Hospital, a California corpora tion,
and Hamilton Taft [. Company, ["HAMILTON TAFT"). 567 Golden Gate
Avenue, San Francisco. California 9t:l02. a California corporation.
NOW, TH =R. :::;:0 RE. in considera tion of the mutual as:-r~:ments set forth below,
the parties agree as follows:
FEES: Hamilton Taft ..... ill charge Stanforc Univ~rsity Hospital on the las,
business cay of each month via De~ository Transfer check. 550.DO for eac.'1
Federal I.D. and SiO.DO per month (or each State in excess of one servicec.
Initiation fees will be a one ~jme charge of SiOa.OO pe:- federal t.D.
e· e·
TERM AND TERJ\\INATION: The term of this Agreement shall begin on
oc:tOber 12. 1983 and continue indefinitely until terminated by either party
as provided below. Stanford University Hospital may terminate this Agreement
immediately if (1) H3millon Taft fails to perform any of its obligations under the
terms of this Agreement; (2) a voluntary or involuntary petition for relief of
debtors or creditors is filed by or against Hamilton Taft; 0 , (31 Hamilton Taft
enters into or effe-.:ts any plan or agreement with its creditors. Either 5 tanford
University Hospital or Hamilton Taft may terminate this Agreement \llIithout cause
Upon 30 days' written notice.
r .,' r( .-:
"Ii \~. .1
, ,
'1 r i.
Hamilton Taft & Company (
}~ "
I'.
.
1255 Post street
San Francisco, CA 94109
before eac~ cue cater a~c shall noti=~ Stanforc of any aeficie~cy
Act (FU~A) taxes. Hamilton T2ft shall make these deposits in ti~e
EXHIBIT A
(' Hamilton Taft & Co.
May 27, 1982
Page 2.
,
not later than ten (10) working days afte~ the due date for each
deposit.
4. Actions bv Stanforc:
Stanford will:
less t~an two (2) days prior to each tax deposit due date,
loose
Hamilton Taft & Co.
May 27, 1982
Page 3.
....
5. Incemnitv: Hamilton Taft agrees to hold harmless, indemni~y
and defend Stanford against any and all liability to any pa~ty for
this agreement.
stanforc grants herebv to Hamilton Taft ~~e use and benefit of temporary
provided hereunder.
Executed: ,
~
/
By: By: ~--:
7 .
Its Its J-x." ~ kr ~ or.d ~
--"""---=='---=-...:=::::......=----'--'---
at __
---.,c.:.~=r.--:::::..:......:::.......--
at Stanford
r
This Amenc:ilent is me-de anc ent'::!re~ into this 7 de.y of
102 E~cin2 Hall, Palo Alto, California 94305, and Hamilton Taft
a no Comp2 ny ("Efu'1ILTON TAFT"}, -567 Golden Gate Avenue, Sa'l
Exce?t for tbe change sat out above, t~e June 29. 1982
Ag reeOilent conti.nues in ef£e~t in all l" '--
... .:l te!: iIlS •
By ;;
~~
Title c,-I rc:rr~
-------------~
EXHIBIT 8
•
Tni;; Arr.enc;:-,e:1l is li'.ac.e and. e~t=::'e-:' L:to thi;: It!": day cf
Febt"uaC'y, 196L, for the purpose of IT.ocifyi'ig the Payr;:;ll Tax Se:--
vit:e A,g.~emenl dated 29 June 1962 between the Boar= of Trustees of
the Leland Stanford Junk. Uni"Je:-sily ("STANFORD"), 102 Er-.ci.:I2,
Hall, Pal"Q Alto, CaliloC"ni.:. 9l.,JOS, and Har.tiiton Taft and Company
("HA~'lILl'ON TAFT"), 567 Golden Gale Avenue, San FC"anci:=co, Ca1i-
forni.: 9L102, a CaliroC":11'1 Corporalic:'1..
Ciil "For CalifaC":'1.iCl Deocsits: Net lale!" tha:l t\lle (2) ~2.nk-
Exceot far the chenge set above, the June 29. 1::82 Ag::-ee;.:ent
canli.;,,\ues i" effec.t i~~ a II its te~~s.
7
~
8Y_-r~=--------,_....c;. _
Tille /~~-
---------------
RECEIVED
AU G3C1984
vP. &r.t"lnf.rii I Cau nsel :: ... .
,-
EXHIBIT C
,-, .
•
(
i'?S5, fc" t.~e £,U~?05e of mociEyinc; the ?=:!coE !a:< S~nti::e Agr:::ee:-.":,:,,
\
cated 2~ June 1982. '::et·~ee:1 the Board of 'I::us~ees of the lelanc Sl:anfoc-=
Junioc Uni\fe~sity (·STANfOaD"), 102 Encina Hall, Palo Alto, California
9~3DS, a.nd Hamilton Tat:: and Company (·~i.~HL'::GN r;.,;-!"), 567 Cnlden Gcite
Avenue, San ="ancLsco, Califocnia 94102, a Califor~ia Cor?o:ation.
(il "For Federal Deoosits: Not. late!: than one (1) banking day afte::-
dt.:e date."
{iil ":-or CalU'or:lia De:losits·: Noe loter than one {ll banking dai'
afte!' due ca~e.·
Exce?t fa r t~e c~a~ge se t above / the June 29, 1982 Age: ee~e!1t
con:~~ues in ef:ec: in all its teems.
9y
Conc:~~lle':"
T'ic.!.e ~~si~~~, E~ilt~ T~~ & C~~tle
-------------
EXHIEIT 0
A..t1ENDMENT TO PA.YROLLTAJ<. SERVICE AG?.EE...~T
.;-1-1
This Arne!lC1nen':. is made anc entered i:lto t.-l,.:'s {I G.ay of I
October, 1985, for the ?ur?0se of modifying the Payroll Tax Ser-
E~lton Taf~ anc Corn?~ny ("~_~~~TON ~AFT"J, 567 Golden Gate Avenue,
HOSPITAL" i::'em '.:wo (2) which shall tJe amenc.ed to reac. in. its entirety
it:'es.
£xce?t for t~e c~a!lqe set a~ove, the October 12, 1983 Aq=ee~e~t
3y
=
Title 'T'"~lc
.... _'--- cf)
y
UJ r-'\; l'l~l
_~l!i_l......
- ~- 1'1+=- - ----
~I L
FEOERAL./POWER OF ATTORNEY
AND DECLARATION OF REPRESENTATIVE
~..Jllcdd
--~
300 ?as ceur Dri.ve PaLo Alto
~l ......
Ca. t i f 94305
lllgl
(41.5) 497-5864
~
\1\.-.... C&I".., n. . ~ , _ ~~. "'adA, ~ ..-.:I ~ ..w b, II--. ~ . dl:lotS ~ ........ =n5Utl.A ........ ~ l.AHt:z 'EMtL. c
"fAa: H. 'ASV" of "".-zTClft Tm " C-::nooMty. ~Iacs. ~7 ~ C&I.",--. ~ n...cta::o, CIJIlDnaa Ita I..- 4lrII;I '-fuf ~ br ~ ~ ... 11: "'in.
.-.... , . _ ...., ."W 1q • ..-.l /1:) ~ ~ ~ o-QoQ< .-..4 _ ' - ao.. Ci'5b1d !:l\twc;Xlr of ~ ~ on t\o:f\aIf at ~~'fW .wrum-c 'No
~ "_a1 u.-tICl~ T.. ~ ~
~ , F~.aI ~1r\Ot ~~.l<t~I
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... 07 Goldaf1 Gal e A.,enue F=rancisco. C.aJltornla 9.( 1Q2 (J'S) B6J·2929
U.S. Department of Justice
Enclosures
b7C
taxes. Unemployment taxes and other various tax liabilities are
also paid by Hamilton Taft. When a company becomes a client of
Hamilton Taft, it notifies Hamilton of the companies payroll
dates, pertinent payroll information, the state in which the_
company is required to pay taxes and the type of taxes which need
to be paid and on what dates. Hamilton collects monies from
these various clients and in turn pays the clients tax obligation
whether they be local, county, state" and/or federal income taxes,
unemployment taxes and/or other tax liabilities.
b7C 1 I advised that when a client company enrolls
with Hamilton Taft, the company notifies Hamilton of its payroll
dates, pertinent payroll information the state in which the
company is required to pay taxes and the type of taxes which need
to be paid. The company then remits to Hamilton Taft on a timely
basis its payroll tax liability. The client company will also
remit funds to Hamilton Taft which would be used to pay the
aforementioned tax liabilities. Historically the funds were
either wired to a Hamilton Taft Impound Account each time a
payroll is paid by the company or Hamilton Taft gains access to
the companies account by a depository transfer check.
Hamilton Taft was also responsible for filing all
applicable federal, state, county and local tax filing
information on behalf of its client and pay their various taxes
as they become due for the service Hamilton Taft charges its
clients a fee based on the number of times a client renders a
payroll and the number of areas taxing agencies which have to be
ultimately paid. Hamilton Taft also receives the interest in
which it can generate on the funds its clients deposit with it.
All this information is revealed to the client prior to a
contract being entered into by the client and Hamilton Taft.
This is also done orally by Hamilton Taft's sales
representatives.
As Hamilton Taft grew, the-company became concerned
with what its liability may be with the funds they were
collecting on behalf of their clients. Because of this internal
concern in 1981, the firm contacted Baker and McKenzie Attorney/s
at Law, 555 California street, San Francisco, California, 94104
and requested that this firm provide Hamilton with an opinion of
the characterization of the funds it was holding on behalf of its
clients for tax payments.
On October 29, 1981, Baker and McKenzie issued an
oplnl0n that basically stated that at the time a payroll is
rendered, that is paid by the employer, tf-'''' ~.. _~- ~~ __ ~ .L..~ _
30,000,000. I
statement which listed Hamilton Taft's assets in excess of
I
financial picture was quite different than
the financia statements which he had prepared for Hamilton from
the month of April, 1988. 13d.!OIl£ ::r. O~1JJ"'--d. [~'''''rJC'li'' - 11'../ oha .;/IICJ';s C;~/~:'
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pparent tel lin looking at the financial
statement showed him that someone had taken the April r
1988 financ~a s atements of Hamilton and re-did them. The
financial statement prepared for Hamilton Taft showed its
retatU:d eD~Dt·ngS at approximately $200,000. I Istated he
told. _ . during this conversation that he thought the
financlal statements which she had showed him for Hamilton Taft
were a fabrication and not r[gr~se:ta~ive of Hamilton Taft's
actual financial condition. _ _ Jreplied that the people in
Dallas were taking care of these f~nancial statements.
I I
noted that the above incident concerning what he
considered false and misleading financial statements was a major
factor in his ultimate decision to sever his employment with
Hamilton Taft. A copy of the interview form FD-302 the interview
ofl I is incorporated as part of this communication.
It should also be noted that onel Iwas
interviewed in september of 1988 regarding his former employment
with Hamilton Taft. At the time of this interview,c==J stated
that he was self-employed as a consultant specializ1ng in
employment taxes. He stated that prior to being self-employed,
he was employed for five years with Hamilton Taft in San
Francisco as their Chief Operations Officer and Executive Vice
President. A copy of the interview conducted withe==] is
attached hereto.
W
"
l
(tbe;e
.
we:re due. I
_
ladvised that at least $20,000,000 in client iJr:r!-~.f·
funds have been transferred to accounts controlled by Chip
Armstrong, the new CEO of Hamilton Taft. I I stated that
fllfdS were used to purchase one or more companies in Tex~s.
. stated that Hamilton Taft had approXimatel: 100 .
,:'b,ui
RICHARD W. HELD
Special Agent in Charge
By: b7C
Agent
6*